NZ Dollar Outlook: Kiwi may gain on positive risk sentiment

Jan. 7 (BusinessDesk) – The New Zealand dollar
may gain this week as rising equity markets and the power of
Chinese demand to lift commodity prices help underpin
positive risk sentiment Down Under.

The kiwi dollar
recently traded at 83.03 US cents from 83.18 cents in New
York trading on Friday. The currency has recovered from as
low as 81.53 cents on Boxing Day. It may trade in a range of
81.80 cents to 84.70 cents this week, with a bias to the
upside, according to a BusinessDesk survey of five traders
and strategists.

The Standard & Poor’s 500 Index closed
at a five-year high on Friday, following a week in which
politicians in Washington managed to avert the fiscal cliff.
The 11th hour agreement provides a temporary reprieve for
the world’s biggest economy, with the next battle set for
February when the Congress needs to agree to lift the
US$16.4 trillion debt ceiling.

Closer to home, the price
of iron ore has climbed about 70 percent in the past four
months, driven by renewed demand from China, adding to
positive sentiment for commodity linked currencies such as
the Australian and New Zealand dollars. China is
Australia’s biggest export market and New Zealand’s
second-largest.

“More evidence of China’s recovery
will help Australian and New Zealand commodity prices and
therefore the currencies,” said Imre Speizer, senior
markets strategist at Westpac Banking Corp. “We’ll stay
with this positive trend – in the week we’re more likely
to test the upside than the downside.”

Speizer said the
kiwi may test 84 US cents this week, with little on the
domestic calendar to disturb its progress.

The only local
economic data due for release this week is November building
consents on Wednesday and November merchandise trade on
Thursday.

Globally, the Bank of England’s monetary
policy committee announces its latest review on Jan. 10 and
the governing council meeting of the European Central Bank
meets and has a media conference on the same day. Both are
expected to keep interest rates unchanged.

The kiwi dollar
recently traded at 73.47 yen and is near its strongest level
in more than four years. The yen has declined as the Bank of
Japan has come under increasing pressure from the new
Japanese government to weaken its currency and take other
steps to stimulate the economy.

“2013 will continue to
see us supported,” said Alex Sinton, senior dealer at ANZ
New Zealand. There are no quick fixes in Europe or the UK
and the US is “still driving on Skippers Canyon road” by
not yet solving the debt ceiling issues or the economy’s
underlying problems.

Still, US Treasury bond
yields have climbed from their 2012 lows and taken together
with rising equity markets, indicate "there is a lot of
hope” for global growth, said Peter Cavanaugh, of Bancorp
Treasury Services.

Traders also took heart from last
week’s release of minutes of the most recent Federal
Reserve meeting, which indicated some committee members want
quantitative easing to end this year, Cavanaugh
said.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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